The Financial Conduct Authority (FCA) annual public meeting is normally a pretty scripted affair: a speech by the chairman, then the chief executive, followed by a few floor questions, before journalists are whisked off for another conference – which mostly repeats what has been said in the previous speeches and floor questions.
Last week’s was little different. However, in among the expected announcements and repeated commitments, new FCA chief executive Andrew Bailey announced that behind closed doors the regulator had begun work on a new mission statement which would enshrine the FCA’s philosophy going forward.
The mission is due in the autumn, and is a real chance for the FCA to take decisive, tangible steps to address concerns shared by the advice profession and the wider financial services industry.
Action stations
A mission statement may sound like a vague, business-speak term. But it is clear the FCA doesn’t have much to go on at the moment in terms of how exactly it should achieve its overriding statutory objective: ‘to ensure that the relevant markets work well.’
The three operational goals that are meant to support that overriding aim – to secure an appropriate degree of protection for consumers, to protect and enhance the integrity of the UK financial system, and to promote effective competition in the interests of consumers – contain very little practical advice.
As Bailey (pictured below) admitted at the meeting, they leave a lot of day-to-day questions about resource allocation, which tools to use and which firms and consumers to focus on unanswered. The mission statement is a chance to get really specific as to where the FCA’s priorities really are.
Undoubtedly the regulator does still have teeth – it has doubled fines on individuals in the last 12 months and people still live in fear of so-called ‘skilled persons’ investigations. The problem is people seem to think the regulator uses its powers on an ad hoc, subjective basis.
If financial services could see that there is a sound and clear backing for the decisions the FCA takes, they may be less keen to complain that the regulatory pendulum has swung too far away from them because, at the very least, it would establish the basis for accountability that they crave.
Part of this accountability relies on the FCA’s senior staff being answerable for failings. The regulator has already made strides towards this with its internal adoption of the same senior managers’ regime it is enforcing on firms. This could be extended set out clearer decision making trees, escalation policies or codes of conduct that dictate responses to any thematic review or enforcement action.
A new mission could say once and for all where the buck stops.
Culture and consumers
With such a sprawling remit and Brexit yet to play out in the regulatory space, the FCA’s resources will come under more pressure than ever. While former FCA chief executive Martin Wheatley was slated for apparently being too tough on banks, Bailey has offered strong hints that vulnerable consumers will take the fore when push comes to shove.
‘I’ll give you my personal starting point I would tend always to have a concern for the more vulnerable consumers because they are at a relative disadvantage in the same market,’ Bailey told the Treasury select committee of MPs the day after announcing the mission.
That may be wise to include in the mission, especially if it results in speedier resolution of longstanding consumer redress issues like payment protection insurance and interest rate hedging products. A more formal commitment to big banks picking up the tab for redress, not the regulator having to squeeze it out of them, would save us all a lot of time and effort.
The FCA does run the risk of angering larger institutions if it does so. If we aren’t allowed to discriminate against different types of customers, why on earth is our regulator, the call will surely come. But again, explaining the basic reason why the regulator has issued a fine or conducted a thematic review would at least make the banks feel like they have had their due process, and could avoid reputational hits like ‘dropping’ the banking culture review last year.
For all of this to work, the FCA may well have to change the stance that it is not a prescriptive regulator. It has repeatedly said it will not pre-approve products or business models, impose mandatory terms on markets like professional indemnity insurance, set out exactly what good culture looks like, or lay out precise formats for regulatory filings like suitability reports.
In order to put a proper stake in the ground on how and why it makes its decisions, it is going to need to be clear which side it is on.
It also needs to address the increasingly blurred line between the Treasury and the regulator. Yes, the FCA will have a huge role advising the Treasury on Brexit, but the mission could clarify where exactly collaboration is needed – for example on proposing regulatory fines – but also that the revolving door of secondees should be slowed.
Time to act
The time is right to look at these issues. Setting out in stone philosophical commitments the second the FCA came into being in 2013 would have been foolish in the extreme. It would have failed to account for a brand new regulatory system, and would almost certainly have been scuppered by the FCA being given powers over consumer credit and competition since its inception.
The FCA has at much at stake as anyone in this to improve its reputation. Let’s hope it gets it right first time round and is bold enough to pull it off. A mission statement, like so much corporate guff, will just disappear into the ether if it means nothing in reality.
